Getting to college is hard work! Your kids will study for years, balance extracurricular activities, take challenging exams, and then spend hours agonizing over college essays. Then, finally, the good news arrives: They’ve been accepted to a stellar college!
Is that moment joyful, or stressful? All too often, parents are not financially prepared to send their child to college. At CollegeBacker, we often see these common mistakes – and we can show you how to avoid them.
Mistake #1 – Waiting to Get Started
Between work, taking care of the kids, and your social life (what social life?) there just doesn’t seem to be enough time. You’re probably very focused on helping your child succeed academically, but planning financially for college might end up on the backburner – for 18 years.
It can be tempting to wait until you have time to create the “perfect” plan (and then inevitably never get around to it) – but it’s more important to get started today.
How to Avoid This Mistake? Take action today. Put $20 away, and then repeat next month. Sure, it may not feel like much now, but you can always increase the amount next time.
Mistake #2 – Going it Alone
Too often, saving for college feels lonely and daunting. Financial topics feel personal and private. As a result, you have an enormous burden of future college costs, and it’s even heavier because you’re carrying it alone. No wonder it feels exhausting!
Instead, ask yourself: Who are the important people in my child’s life? The list starts with you, the parent, but it continues with grandparents, godparents, aunts and uncles, mentors, teachers, coaches, and your friends.
How to Avoid This Mistake? Use graduations, birthday parties, holidays, and other special occasions as opportunities to save. Instead of physical gifts, tell guests that your family would prefer college contributions. With CollegeBacker, you can make this easy by sharing a unique link to your child’s account.
Mistake #3 – Getting Overwhelmed by Choice and Defaulting to a Savings Account
6 in 10 families are saving for college in traditional savings accounts. Wow! Those families are probably losing ground with their savings, since they accrue very little interest while the cost of college is growing rapidly. After you’ve worked so hard to save, why not let your money goes as far as possible?
We get it. There are an overwhelming number of options (like a 529 Plan, Coverdell, UGMA/UTMA, and more). Savings accounts are much more approachable. But they won’t help you keep up with rising costs.
How to Avoid This Mistake? Consider a 529 College Savings Plan. For most families, a 529 is the best option to save for college. 529s can grow significantly over time, since your money is invested and grows tax-free. Saving with almost any 529 Plan is likely to outperform a savings account, but if you’re still overwhelmed by 529 choices, CollegeBacker can simplify the process for you.
Mistake #4 – Stopping 529 Deposits Once a Child Enters College
Your child got into a great school and is on his or her way to be the next doctor, lawyer, or human rights activist. You should celebrate, maybe even throw a party!
One thing you should not do is discontinue contributions into the child’s 529. All too often, we see families stop contributing because college has arrived – even though there are three more years of expenses to address.
How to Avoid This Mistake? Continue saving throughout college. In a 529, these savings continue to grow tax-free. For example, contributions made during freshman year may grow by senior year. If there is money left at graduation, fantastic! 529s can be used for graduate school, or you can change the beneficiary to another child, another family member, or even to yourself.
Mistake #5 – Missing Out on the American Opportunity Tax Credit
For many of us, filing taxes is stressful, confusing, and there are many deductions to consider. But if you have a child in college, we have some great news for you.
The American Opportunity Tax Credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student.
How to Avoid This Mistake? If you qualify, claim the American Opportunity Tax Credit for a huge savings on your tax bill. Even better, if your child still has more college ahead, put that money towards ongoing college savings.
If you want more help avoiding these mistakes and others, visit us at CollegeBacker.com. What mistakes have you seen? Leave us a comment or email us at email@example.com.
CollegeBacker is an SEC-registered investment adviser dedicated to helping families save for college. With CollegeBacker, parents can quickly & easily enroll in a tax-advantaged 529 College Savings Plan, determine a personalized savings goal, and invite family & friends to contribute. Plus, anyone can use CollegeBacker to kickstart another child’s college savings plan.